MBS Prices Rally After Econ Data. Early Close For Bond Traders

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Good Morning. Personal Income and Spending data has been released.

From the BEA:

Personal income increased 0.4 percent in April after increasing the same percent in March. Wages and salaries, the largest component of personal income, rose 0.4 percent after rising 0.3 percent.

Real disposable personal income (DPI), income adjusted for inflation and taxes, increased 0.5 percent in April compared to a 0.3 percent increase in March.

Real consumer spending, spending adjusted for price changes, was unchanged in April, compared to a 0.5 percent increase in March.

PCE prices were flat in April, compared to an increase of 0.1 percent in March. Excluding food and energy, prices increased 0.1 percent in April, the same as in March.

Personal saving as a percent of disposable personal income was 3.6 percent in April.

  • APRIL PERSONAL SPENDING UNCH VS. CONSENSUS +0.3 PCT VS MARCH +0.6 PCT (PREV +0.6) WORSE THAN FORECAST
  • APRIL PERSONAL INCOME +0.4 PCT VS. CONS +0.5 PCT VS. MARCH +0.4 PCT (PREV +0.3) WORSE THAN FORECAST
  • APRIL CORE PCE PRICE INDEX +0.1 PCT VS. +0.0847 VS. CONS +0.1 PCT  VS MARCH +0.1 PCT (PREV +0.1) ON THE SCREWS
  • APRIL OVERALL PCE PRICE INDEX UNCH (+0.0145) VS MARCH +0.1 PCT (PREV +0.1)
  • APRIL YEAR-OVER-YEAR PCE PRICE INDEX +2.0 PCT (MARCH +2.0 PCT), CORE +1.2 PCT (MARCH +1.3 PCT)
  • APRIL REAL CONSUMER SPENDING UNCH VS MARCH +0.5 PCT (PREV +0.5 PCT)
  • APRIL PERSONAL SAVING RATE 3.6 PCT VS MARCH 3.1 PCT

Plain and Simple: while the reduction in spending might spook a few folks who are nervous about long term unemployment trends...it is good to see wages and salaries improving.

10s have bounced off 3.36%, the 23.6% retracement level of the 2010 high yield mark (HERE IS A CHART), and are currently poking and prodding at the 3.31% resistance.

The FN 4.0 is +0-07 at 99-04. The FN 4.5 is +0-06 at 101-30. The secondary market current coupon is 2.5bps lower at 4.18%. Yield spreads are 2bps wider into the rally.The current coupon is +86.4bps over the 10yr TSY yield and +79.1bps over the 10yr interest rate swap. 3m10y vol is +1bp at 117.

It is still unclear whether the stock market rally we witnessed yesterday was simply a short term correction in the context of a broader downtrend or a bottoming out/trend reversal. Volume in equities was below average which implies upside momentum is limited.

S&Ps moved sideways overnight and are currently +0.25 at 1101.25. If stocks extend their month-end rally, 10s will likely fail tests of 3.31% resistance and yields will tick higher which would push "rate sheet influential" MBS prices back toward flat on the day. The 10yr runs into a stable support level at 3.36% and the FN45 will find firm footing at 101-24.

NEXT EVENT: CHICAGO PMI AND UofMichigan Consumer Sentiment at 10am

SIFMA says bond traders can unplug at 2pm today to get a jump on Memorial Day fesitivities.